Merchant vs manufacturer exporter: export without a factory

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What a merchant exporter is under India's FTP, how GST works for traders, and the conditions for the 0.1% GST rate on export purchases.

Short answer: under India's Foreign Trade Policy, a manufacturer exporter exports goods it makes itself, and a merchant exporter is a trader who buys goods and exports them. You don't need a factory to export. A merchant exporter needs the same basic registrations as any exporter (IEC, GST, a bank account that can receive export payments), and it can use a special concessional GST rate when buying from Indian suppliers: 0.1% IGST on inter-State purchases, if strict conditions are met.

This article explains the two definitions, what changes in practice for traders, how the 0.1% GST concession works, and when it is simpler to buy at normal GST and claim a refund instead.

The official definitions

Chapter 11 of the Foreign Trade Policy (FTP) 2023 defines both terms:

• Manufacturer exporter (para 11.32): "a person who exports goods manufactured by him or intends to export such goods."
• Merchant exporter (para 11.33): "a person engaged in trading activity and exporting or intending to export goods."

The FTP's definition of "manufacture" (para 11.31) is wide. Besides making a new product by hand or machine, it includes processes such as re-packing, polishing and labelling. A business that does some processing on bought-in goods should check which side of the line it falls on for a particular scheme.

A third term matters for traders. A supporting manufacturer is someone who makes goods, or parts of goods, for a merchant exporter or manufacturer exporter under a specific authorisation.

Can you export without a factory?

Yes. Nothing in the FTP limits exports to manufacturers. Many Indian exporters are traders who source from manufacturers, artisans or farmers and handle the buyer, documents, shipping and payment.

To start, a merchant exporter typically needs:

• An Importer-Exporter Code (IEC) from DGFT. Our step-by-step IEC guide covers this.
• GST registration. The GST Council's exports FAQ explains that exports are treated as inter-State supplies, so an exporter must register under GST.
• A current account with a bank that handles export payments.
• An RCMC from the export promotion council or commodity board for your product, if you want FTP benefits or the 0.1% GST rate. FTP para 2.57 generally requires an RCMC for benefits under the policy.

Merchant vs manufacturer exporter: key differences

Point	Manufacturer exporter	Merchant exporter
Makes the goods?	Yes, in its own unit	No; buys from suppliers
Control over quality and lead times	Direct	Through supplier agreements and inspections
GST on export	Zero-rated: export under LUT or pay IGST and claim a refund	Same, plus the option to buy at 0.1% GST under conditions
Advance Authorisation (duty-free inputs)	Eligible	Eligible only when tied to a supporting manufacturer (FTP para 4.05)
Upfront capital	Plant and machinery	Working capital for purchases

The GST Council's exports FAQ makes an important point: under GST, the procedure for supplies made for export is the same for merchant and manufacturer exporters. The differences show up in specific schemes, not in the basic way GST treats an export.

How GST works for a merchant exporter

Exports are "zero-rated" under GST. In simple terms, you should not end up carrying GST cost on goods that leave India. A merchant exporter has three common ways to achieve that.

Option 1: Buy at normal GST, export under LUT, claim refund of input tax credit

You buy goods from your supplier with normal GST and take input tax credit. You export under a Letter of Undertaking (LUT) without paying IGST, then claim a refund of the unused credit. The GST Council's FAQ describes exactly this route for merchant exporters.

Option 2: Buy at normal GST, export on payment of IGST, claim IGST refund

You pay IGST on the export (usually using your input credit) and claim a refund of that IGST. For goods, the shipping bill itself is treated as the refund application once the export general manifest and a valid return are filed.

Option 3: Buy at the concessional 0.1% rate

Two notifications dated 23 October 2017 let a registered supplier charge a very low rate on goods sold to a registered merchant exporter for export:

• Notification 41/2017-Integrated Tax (Rate) limits IGST on inter-State supplies to 0.1%.
• Notification 40/2017-Central Tax (Rate) limits central tax on intra-State supplies to 0.05%. States issued matching notifications for State tax, so check yours.

This option keeps your working capital free, because you are not paying full GST and then waiting for a refund. The conditions are strict, though.

The conditions for the 0.1% GST concession

Both notifications set the same conditions. In plain English:

1. The supplier must sell to you on a tax invoice, and both of you must be GST-registered.
2. You must export the goods within 90 days from the date of the supplier's tax invoice.
3. Your shipping bill (or bill of export) must show the supplier's GSTIN and tax invoice number.
4. You must be registered with an Export Promotion Council or a Commodity Board recognised by the Department of Commerce.
5. You must place a purchase order for goods at the concessional rate, and send a copy to the supplier's jurisdictional tax officer.
6. The goods must move from the supplier directly to the port, ICD, airport or land customs station, or directly to a registered warehouse and from there to the port.
7. If you combine goods from several suppliers, each supplier's goods must go to a registered warehouse. You endorse receipt on each tax invoice, get an acknowledgement from the warehouse operator, and give both to the supplier and the supplier's tax officer.
8. After export, you must give the supplier and the supplier's tax officer a copy of the shipping bill (with the supplier's GSTIN and invoice details) and proof that the export general manifest or export report was filed.

The risk sits with your supplier. Each notification says the supplier loses the exemption if you do not export within 90 days. In practice, the supplier may then have to pay the full GST, so many suppliers will ask for a written undertaking or a deposit before agreeing to the 0.1% rate.

Which GST route should a merchant exporter choose?

• Choose 0.1% if you export quickly (well inside 90 days), work with a few steady suppliers who understand the paperwork, and can ship directly from the supplier or a registered warehouse.
• Choose normal GST plus a refund if your shipments are irregular, you consolidate goods at your own premises, or your suppliers are not comfortable with the conditions. You carry the tax for a while, but the paperwork risk is lower.

Talk to your GST practitioner before you decide. The right answer depends on your refund history, cash flow and supplier relationships.

Schemes: where merchant exporters are treated differently

Advance Authorisation. This scheme lets you import inputs duty-free for export production. FTP para 4.05 allows it for a manufacturer exporter, or a merchant exporter tied to a supporting manufacturer. Some categories, such as certain pharmaceutical products made through a non-infringing process, are for manufacturer exporters only.

Supporting manufacturer benefits. FTP para 2.41 says that for any benefit to go to the supporting manufacturer, the names of both the supporting manufacturer and the merchant exporter must appear on the export documents, especially the tax invoice and shipping bill.

For other incentives, check the scheme's own rules and the latest notifications before you price your goods. Our guide Claim Every Rupee gives an overview of export incentives.

Practical tips for merchant exporters

• Put quality terms in writing with your supplier: specifications, tolerances, packing and who pays if goods fail inspection.
• Book inspection before dispatch. You are the exporter on record, so the buyer will hold you responsible.
• Keep the paper trail tidy. Purchase orders, tax invoices, e-way bills, warehouse acknowledgements and shipping bills should all match.
• Protect your margin. Price in your sourcing, inland freight, port costs and finance cost before quoting. Our guide Get Paid, Every Time covers payment terms.
• Find buyers early. A supplier will take you more seriously with a real order. Our buyer-leads page explains how we help.

Frequently asked questions

What is the difference between a merchant exporter and a manufacturer exporter?

A manufacturer exporter exports goods it makes itself. A merchant exporter is a trader that buys goods and exports them. Both definitions are in Chapter 11 of the Foreign Trade Policy 2023 (paras 11.32 and 11.33).

Can I export without owning a factory?

Yes. You can export as a merchant exporter. You will need an IEC, GST registration and a bank that handles export payments, and usually an RCMC if you want to use FTP benefits or the 0.1% GST rate.

What is the 0.1% GST rate for merchant exporters?

Under Notification 41/2017-Integrated Tax (Rate), a registered supplier can charge IGST of only 0.1% on goods sold inter-State to a registered merchant exporter for export. Notification 40/2017-Central Tax (Rate) caps central tax at 0.05% on intra-State sales. The exporter must export within 90 days and meet the other conditions.

What happens if the goods are not exported within 90 days?

The notifications say the supplier is not eligible for the concession if the exporter fails to export within 90 days of the tax invoice. Agree in advance with your supplier how any extra tax will be handled.

Can a merchant exporter get Advance Authorisation?

Yes, but only when tied to a supporting manufacturer, as per FTP para 4.05(a). Some product categories are limited to manufacturer exporters.

Educational information only, not legal or tax advice. GST rates and conditions can change; check the current notifications on the CBIC GST portal and speak to a qualified GST practitioner before you act.

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Educational information only, not legal, tax or financial advice. Always verify current rules on DGFT, ICEGATE and RBI portals before acting.